Final answer:
To record the purchase of Oriole Company, Linden Corporation will adjust Oriole's balance sheet for the fair market values of land and equipment, debit the adjusted assets, credit the liabilities and equity, and recognize any excess of purchase price over the fair value of the net assets as Goodwill.
Step-by-step explanation:
To record the purchase of Oriole Company on Linden Corporation's books, we must first adjust the values on Oriole's balance sheet to fair market values. This involves increasing the land value by $23,000 and decreasing the equipment value by $3,000, as per the additional information provided. With the adjustments, the land value becomes $260,000 (which is $237,000 + $23,000) and the equipment value becomes $189,000 (which is $192,000 - $3,000). The total purchase price agreed is $336,000.
The journal entry on Linden's books to record the purchase would be:
- Debit Cash $108,000
- Debit Land $260,000
- Debit Equipment $189,000
- Debit Trademark $40,500
- Credit Accounts Payable $139,000
- Credit Notes Payable $264,000
- Credit Common Stock $146,000
- Credit Retained Earnings $28,500
- Credit Goodwill or other intangibles the remainder amount to balance the transaction
Since the liabilities and equity on Oriole's balance sheet add up to $577,500, and Linden is purchasing the company for less, the difference will be recorded as Goodwill or another appropriate intangible asset. The exact amount of Goodwill will be the purchase price minus the fair values of the identifiable net assets (assets minus liabilities).